When taking out a home equity loan or a home equity line of credit (HELOC) you are borrowing money and using the equity in your home as collateral, but the two options are very different.
A home equity loan, sometimes also referred to as a 2nd mortgage, allows you to borrow a lump sum of money which will be repaid over a fixed term. This option gives you as the borrower the security of a fixed rate and consistent monthly payment.
A home equity line of credit, or HELOC, allows you to borrow money as you need it, up to the approved credit limit versus borrowing a lump sum. As you pay down your balance those funds are then available to you to use again. HELOC’s are variable rate loans, so your monthly payments will change based on how much money you have used and on fluctuations in the prime rate.
Tapping into the equity of your home can be an important resource if you are looking to make remodels to your home, consolidate high interest debt, pay for college, or even access cash in the case of an emergency. It’s also important to look into which home equity option is right for you. If you aren’t sure, make an appointment with a loan officer at your financial institution. They can look at your current financial situation and help you decide what your best option is.
For more information on home equity products here at HFS, visit the following links: